ICE and NYMEX: two oil titans battling to win

By IBT Staff Reporter On 11/30/09 AT 2:31 PM

NYMEX introduced ASCI contracts earlier this month and said it will launch a physically-deliverable U.S. Gulf sour crude contract early in December. Around the same time, the ICE will launch cash-settled futures contracts tracking ASCI on December 7.

For some analysts, providing the option of a physical settlement could give NYMEX the edge.

But the ICE has also claimed victory. In an interview with Reuters, its Chairman and Chief Executive Jeffrey Sprecher noted Saudi Arabia had stuck to using a Brent Weighted Average (BWAVE), based on Brent crude futures, for shipments of Saudi crude into Europe and argued the U.S. benchmark was flawed.

The most liquid contract in the world, U.S. light crude futures, is based on West Texas Intermediate (WTI), a land-locked oil delivered into Cushing, Oklahoma.

Critics of the contract argue it tends to reflect inventories at the delivery point, rather than supply and demand in the major oil consumption center, the U.S. Gulf Coast.

Bob Levin of CME Group has not ruled out that ASCI could over time wrest liquidity from the main U.S. contract, but only by relying on its support.

For now, sour crude contracts will need to lean on WTI for liquidity support. Not only is ACSI structured as a direct differential to the NYMEX WTI settlement price, the three ASCI component crude streams are each priced as a direct differential to the NYMEX WTI settlement price, he told Reuters.